Arizona May Touch Off Flood of States Asking Obama to Allow Medicaid Cuts

By Pat Wechsler and Christopher Palmeri -
Jan 27, 2011

President Barack Obama faces a new
challenge from deficit-plagued states over Medicaid costs just
as he squares off with Republicans trying to repeal his 2010
health-care law, which extends coverage to 32 million Americans.

Arizona Governor Jan Brewer asked for U.S. permission on
Jan. 25 to reduce Medicaid eligibility and drop coverage for
280,000 people. That would save $541.5 million for the state,
which projects a $1.2 billion budget deficit for the coming
fiscal year.

U.S. states must confront potential budget gaps of more
than $140 billion for fiscal 2012 because tax collections
declined by the most on record during the recession, according
to the Washington-based Center on Budget and Policy Priorities.
That may prompt more to seek release from some Medicaid
obligations, their biggest expense, as federal aid that has
helped them cover the costs for the last three years ends.

“There are other states contemplating” requests for
waivers, said Dan Mendelson, chief executive officer of the
Washington-based consulting firm Avalere Health LLC and a former
associate director for health in the Office of Management and
Budget under President Bill Clinton. “Letters are coming from
some big states reaching the point of no return.”

Mendelson declined to name them, saying “border states”
such as Texas were in “fiscally impossible situations.”

“This gets political and there will have to be a political
accommodation reached,” Mendelson said. “Arizona is not the
only state in trouble and the administration is going to have to
think collectively about how to deal with all of them.”

Federal Help

Enrollment in Medicaid, the joint federal and state health-
care program for the poor, jumped almost 14 percent since the
recession began in 2007, according to the Henry J. Kaiser Family
Foundation in Menlo Park, California. The health-care overhaul
signed by Obama on March 30 would add another 16 million people
to the program in 2014 as the federal government establishes a
nationwide eligibility standard to replace the current rules set
by the states.

States got federal help with Medicaid costs from the
American Recovery and Re-Investment Act, which provided $103
billion for the past three years. That will cease in June.
States may see a 25 percent jump in Medicaid expenses in fiscal
2012 as a result, according to the Kaiser foundation.

They’re unlikely to receive help from Congress, where
Republicans won a majority in the House of Representatives in
November with promises to reduce federal spending.

Appeal by Governors

The House voted on Jan. 19 to repeal Obama’s health-care
legislation. While the bid has little chance of taking effect
because Democrats still control the Senate, it furthered
Republican efforts to reopen the issue in their drive to cut government spending.

Pressed by their own need to reduce costs, 33 governors and
governors-elect, including Brewer, sent Obama and other federal
officials a letter on Jan. 7 asking for the removal of a
requirement in the health-care overhaul that makes states
maintain Medicaid eligibility for the same people who qualified
before the legislation was signed.

The rule is designed to prevent states from dropping people
as a result of the law. States that fail to comply can lose
federal Medicaid reimbursements. Arizona, where Brewer stands to
lose as much as $1 billion in federal funds if she cuts
enrollment, is the first to seek a waiver of the rule.

“We’re asking for a little more control over our
destiny,” said Matt Salo, director of health-care policy for
the National Association of Governors in Washington. “This
isn’t a partisan issue, it’s just a fiscal-reality issue.”

Sebelius Decision

The association sent a letter to congressional leaders on
Jan. 24 asking them not to limit the ability of states to cut
health-care and other programs partly funded by Washington.

The Department of Health and Human Services hasn’t
received any letters, including Brewer’s, seeking a waiver from
the enrollment rules, said Mary Kahn, a spokeswoman for
Secretary Kathleen Sebelius, who would make the decision. The
White House declined to comment, said Nick Papas, a spokesman.

Rick Perry, the Republican governor of Texas and one of
those who signed the Jan. 7 letter to Obama, hasn’t submitted a
waiver request, said Lucy Nashed, a spokeswoman for the
governor. Mississippi Republican Governor Haley Barbour, also
part of the Jan. 7 letter, isn’t planning one, his spokesman Dan
Turner, said in an e-mail.

Within Rules

Georgia’s Governor Nathan Deal, a Republican, hasn’t
“offered specific cuts, but the governor would happily work on
such a proposal,” Brian Robinson, a spokesman, said via e-mail.

Democratic governors are acting to curb Medicaid costs
within the federal rules. California’s Jerry Brown, in one of
his first actions upon taking office in January, proposed a $1.7
billion cut in Medi-Cal, the state’s $41 billion Medicaid
administrator. That was $700 million more than asked by his
Republican predecessor, Arnold Schwarzenegger.

Brown’s budget anticipates the number enrolled in the
program rising by 131,500 to 7.65 million, or 20 percent of the
state’s population. His proposal would for the first time stop
paying for doctor visits after 10 per year, among other cuts.

“We’re not asking for a similar-type waiver,” Anthony
Cava, a spokesman for California’s Department of Health Care
Services, said in a telephone interview when asked about
Arizona’s request.

Democratic Governor Pat Quinn of Illinois signed Medicaid
overhaul legislation on Jan. 25 that would tighten but not
reduce eligibility standards by requiring proof of Illinois
residency and a month’s worth of income information. It would
also establish a moratorium on eligibility expansions, among
other measures.

Allowing states to cut some beneficiaries, as Arizona
seeks, would be a difficult decision for the Obama
administration because it doesn’t want anyone to lose coverage,
said Vernon Smith, a former director of Michigan’s Medicaid
program and now a consultant in Lansing, Michigan, with Health
Management Associates.

“The federal government will be torn on this issue,”
Smith said in a telephone interview, because the Obama
administration is “clearly aware of the dire straits” of
states.

“States are grasping at every straw,” he said, “and this
is one of them.”